Non-farm employment increased by 22k in August, short of Bloomberg’s consensus forecast of 75k, but nearly right on top of our forecast.
- Job gains for the prior two months were revised lower by a total of 21k.
- Over the past three months, non-farm payrolls averaged 29k jobs, well below the twelve-month average of 122k.
Private payrolls rose 38k – down from 77k reported in July – with most of the gains concentrated in health care & social assistance (+46.8k), leisure & hospitality (+28k) and retail trade (+10.5k). Meanwhile, goods producing industries (-25k), professional & business services (-17k) and government (-16k) all shed jobs on the month. The manufacturing sector has now released 42K workers since May, in a four-month string of steady monthly job losses.
In the household survey, the labor force (+436k) shot higher – following declines in each of the prior three months – eclipsing a smaller gain in civilian employment (+288k) and pushing the unemployment rate up to a new cyclical high of 4.3%. The labor force participation rate ticked up to 62.3% (from 62.2%).
Average hourly earnings (AHE) rose 0.3% month-on-month (m/m) – matching July’s gain. On a twelve-month basis, AHE were up 3.7% (from 3.9% in June).
Key Implications
There’s no escaping that the labor market is softening, and quickly. Once again, there was a low response rate in the August survey, at less than 60%. This suggests we could see further downward revisions in next month’s release when the response rate typically returns to 90% or more. Further signs of weakness were also evident in the household survey, where measures of unemployment and underemployment each reached new cyclical highs of 4.3% and 8.1%, respectively.
Fed officials have become increasingly concerned about the downside risks to the labor market, and this morning’s report will not assuage those fears. We maintained an out-of-consensus view since April that the Federal Reserve would need to deliver 75 basis points in rate-relief this year, and our conviction remains high that it will occur. Markets are increasingly moving to that view. As for that first step, Fed futures are fully priced for a September rate cut.
